24-03-2017

Asia arbitrage talk boosts early April North Sea crude

arbitrage

The price of North Sea crude that helps set global prices has risen for early April despite ample supply in floating storage, supported by expectations that at least one supertanker shipment will be leaving the region for Asia next month.

The North Sea is home to the dated Brent benchmark, which is underpinned by Forties crude and three other grades. Arbitraging the Forties on Very Large Crude Carriers (VLCCs), usually to South Korea or China, often boosts the market.
“There is talk of VLCCs going out of the region in April,” said a North Sea trade source. “There could be several.”

The stronger market comes even though there is no shortage of available oil. As much as 9 million barrels of North Sea crude is currently being stored on ships offshore the UK, according to shipping data and trade sources.

In North Sea trading on Wednesday, Forties crude for loading on April 9-12 was bid by Unipec to a 5 cents-per-barrel discount to dated Brent, 5 cents higher than a deal on Tuesday and the highest in a month.

Also, Glencore bid for an April 10-12 Forties cargo at dated minus 15 cents, up 25 cents from a bid on Tuesday.
Short-term Brent swaps, or contracts for differences, for the two weeks ending April 7 are trading at a premium to the following two weeks, a structure known as backwardation and a sign of a tighter market.

Supporting the talk of arbitrage, a second North Sea trade source said there was an effort under way to put together a supertanker, which combines several 600,000-barrel Forties cargoes.

“There is a request for a VLCC in early April which is in the process of being put together,” the source said. “It will probably be confirmed in the next few days.”

Unipec had made the request, the source said, although that did not mean the Chinese firm would be the final taker of the vessel.

Unipec has acquired a number of April Forties cargoes through the chains — a forward market in which cargoes soon to be assigned loading dates are traded — as has Mercuria, trade sources said.

The Brent benchmark is set by the cheapest of four North Sea grades – Forties, Oseberg and Ekofisk, as well as Brent itself. Forties is often the cheapest, but has moved to a premium to Brent this week.

Source: Reuters

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